Do negative interest rates make banks less safe?

We study the impact of increasingly negative central bank policy rates on banks’ propensity to become undercapitalized in a financial crisis (‘SRisk’). We find that the risk impact of negative rates depends on banks’ business models: Large banks with diversified income streams are perceived as less...

Full description

Saved in:
Bibliographic Details
Published in:Economics letters 2017-10, Vol.159, p.112-115
Main Authors: Nucera, Federico, Lucas, André, Schaumburg, Julia, Schwaab, Bernd
Format: Article
Language:English
Subjects:
Bank business model
Business models
Central banks
Economic crisis
Interest rates
Negative interest rates
Studies
Systemic risk
Unconventional monetary policy measures
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We study the impact of increasingly negative central bank policy rates on banks’ propensity to become undercapitalized in a financial crisis (‘SRisk’). We find that the risk impact of negative rates depends on banks’ business models: Large banks with diversified income streams are perceived as less risky, while smaller and more traditional banks are perceived as more risky. Policy rate cuts below zero trigger different SRisk responses than an earlier cut to zero. •Banks’ systemic risk reactions to rate cuts into negative territory differ across bank business models.•Large universal banks and fee-focused banks appear to have benefited from rate cuts into negative territory.•Rate cuts in positive territory appear to have a different impact.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2017.07.014